Shares of Fortescue Metals Group Limited (ASX: FMG) have returned to the red in a big way today, falling 5.2% to $1.84 and reversing most of the gains recognised on Wednesday.
Although the iron ore price climbed for the second-straight session to US$47.90 a tonne overnight, according to the Metal Bulletin, investors are likely responding to news that China's State Council has introduced a new round of tax cuts for its local miners in an effort to help them remain afloat. As reported by the Fairfax press, Chinese miners will receive a 6 yuan ($1.27) tax cut on each tonne of the commodity produced.
This comes as bad news to Australia's high-cost producers because it will help Chinese miners become even more competitive, while it could force iron ore prices even lower. Atlas Iron Limited (ASX: AGO) may have become the first major scalp claimed by the commodities crisis earlier in the week (the stock entered a voluntary suspension from trade), with BC Iron Limited (ASX: BCI) and Mount Gibson Iron Limited (ASX: MGX) potentially not too far behind.
While Fortescue Metals Group operates on lower costs and has the cash balance to help it survive for longer, it's still unlikely to be making a profit at these depressed prices. Given that most analysts expect iron ore to plummet even further over the next 12 months, Fortescue's shares could still have a lot further to fall before conditions begin to improve.
